The landscape of college sports has changed significantly for student athletes: NCAA student athletes can now earn money on their NIL (Name, Image, and Likeness) as outdated rules that said that student athletes could not earn income while in college were eliminated. Whether you follow all of the congressional hearings on the matter (read our advisor Chase Griffin’s testimony to Congress) or know the ins and outs of the new regulations, one thing is clear – student athletes can now earn money in many different ways. This comes with an entirely new set of action items that those in the college sports arena need to follow. While this change has provided new opportunities for student athletes to monetize their talents, it has also introduced new tax requirements to student athletes and businesses that engage them. 

Not correctly understanding tax responsibilities on NIL payments can lead to significant penalties and interest for student athletes who may not be aware the money they receive is taxable income or for businesses that are not properly reporting these payments to the IRS. In this article, we explore the implications of NIL payments for student athletes and organizations, the hidden costs of ignoring NIL taxes, and how Payment Labs, a fintech specializing in automating payments and tax compliance, can help businesses and student athletes avoid costly mistakes.

Understanding NIL and Its Impact on Student Athletes

NIL rights represent a huge shift in college athletics. Before NIL, student athletes were prohibited from capitalizing on their fame, preventing them from earning income from endorsements, appearances, or social media influence. However, with regulation changes, and the rise of NIL in popularity from brands wanting to engage student athletes to endorse their products, student athletes can now monetize their name, image, and likeness while participating in college sports. This change has significant implications for student athletes, both in terms of opportunities and then also for tax considerations.

Opportunities for Student Athletes:

Endorsements and Sponsorships: Student athletes can now enter endorsement deals with businesses, promoting products or services in exchange for compensation. These deals can range from local businesses to national brands.

Licensing: Well-known, popular, and superstar student athletes can also license their name, image, likeness, or brand to businesses. Recently, the video game publisher Electronic Arts announced they would pay every scholarship player $600 from the 134 FBS program if they opt into the offer to be included in their College Football 25 video game. Over 10,000 student athletes accepted the offer.

Social Media and Content Creation: Student athletes can monetize their social media presence and create content on platforms like Instagram, YouTube, or TikTok, opening up revenue streams through ads, merchandise, and sponsored content.

Appearances and Autograph Sessions: Student athletes can earn fees for participating in public appearances, autograph sessions, and other promotional events.

Merchandise Sales: Some student athletes may have the opportunity to sell merchandise with their name, image, or brand to generate additional income.

While these opportunities are impactful, they come with tax implications that student athletes must navigate, something that a platform like Payment Labs can automate and streamline.

Tax Implications for Student Athletes:

Income Tax: Any earnings from NIL activities are considered income and are subject to federal and state income taxes. Student athletes need to report these earnings accurately.

Self-Employment Tax: In some cases, student athletes may be considered self-employed for NIL activities, which means they are responsible for paying self-employment taxes, similar to entrepreneurs and owners of small businesses.

Quarterly Estimated Taxes: Student athletes receiving significant NIL income may need to make quarterly estimated tax payments to avoid penalties at the end of the tax year.

Tax Deductions: Student athletes may be eligible for deductions related to their NIL activities, such as expenses for promotional events, travel, meals, and equipment.

Challenges for Businesses Engaging with Student Athletes:

For businesses looking to engage with student athletes, several challenges arise when it comes to handling payments and tax compliance:

Business Experience: Some student athletes may lack the experience to work directly with businesses that pay for services. This can range from negotiating the initial business contract and payment terms to properly onboarding (providing the necessary personal and tax information) as a vendor or payee onto the business’s accounting system so they can be paid.

Tax Form Complexity: Accurately filling out tax forms, including Form W-9, can be confusing for student athletes who are not familiar with tax forms and requirements.

Payment Options: Student athletes have diverse preferences for receiving payments. While some may prefer bank transfers, others may opt for alternative digital payment methods they use more regularly.

Payment Labs: Streamlining NIL Payments and Tax Compliance

Payment Labs understands the unique challenges that student athletes and businesses face regarding NIL payments and tax compliance. It offers solutions to these challenges by providing an automated, easy-to-use online platform for student athletes and businesses throughout the payment process. In addition to a streamlined registration and payment process, white-glove payment support is available to help both the student athlete and businesses navigate through the entire payment process with transparency and tracking.

Payment Labs also offers multiple payment options, accommodating student athletes’ preferences. Whether they prefer bank transfers or other digital payment methods, the platform can facilitate payments quickly and efficiently. Student athletes may also want to use more familiar methods of payments that they use in their daily life like prepaid cards that they can load onto their Apple Pay or Google wallets or real-time push to debit cards where the funds are available immediately.

NIL represents a transformative opportunity for college athletes to monetize their talents, but it also introduces new tax reporting and filing requirements. For businesses engaging with student athletes, the Payment Labs solution allows you to pay the student athletes securely and compliantly with just a verified email address. The Payment Labs platform does the time-consuming work of accurately collecting, verifying, reporting, and filing any tax forms, along with remitting any tax payments or withholdings when applicable. 

The Risks of Ignoring NIL Taxes

IRS Non-Compliance: The Internal Revenue Service (IRS) mandates that NIL earnings are subject to taxation. Ignoring these tax obligations can lead to audits, penalties, and legal issues for student athletes and businesses.

Financial Penalties: Student athletes who fail to report NIL income can face hefty fines and back taxes. These unexpected financial penalties can affect their financial well-being.

Loss of Eligibility: NCAA rules stipulate that student athletes must comply with tax laws. Ignoring NIL taxes could result in the loss of eligibility, preventing student athletes from participating in college sports.

Damaged Reputation: Businesses that engage with student athletes for NIL deals risk damaging their reputation if they are associated with student athletes facing tax evasion allegations.

Lost Opportunities: Student athletes may miss lucrative NIL opportunities if businesses hesitate to collaborate due to tax compliance concerns.

It’s clear that the risks of ignoring NIL payment-related taxes are substantial and can have far-reaching consequences for both student athletes and businesses. Payment Labs offers a comprehensive solution to address these challenges.

How Payment Labs Streamlines NIL Payments and Taxes

Payment Labs understands the complexities of NIL payments and the tax requirements associated with these payments. Here’s how Payment Labs can help:

Automated Information Collection: Payment Labs streamlines the collection of necessary payment and tax information from student athletes. Student athletes can securely enter their payment and tax-related information through a guided online registration process that is verified to reduce any human error, ensuring businesses have the required information to compliantly make the payment.

Efficient Payment Processing: The platform facilitates seamless payment processing, ensuring that student athletes receive their earnings promptly and accurately with full transparency and tracking in the method of payment they select. This reduces the need for manual payment support, saving time and money. 

Year-End Tax Reporting: Payment Labs generates year-end tax reports and forms, simplifying the year-end tax filing process for student athletes and businesses to ensure compliance with IRS regulations.

Secure Data Handling: Payment Labs platform prioritizes data security, safeguarding sensitive tax information and payment details to protect student athletes and businesses from data breaches, identity theft, and fraud.

The Benefits of Payment Labs for Student Athletes

Student athletes have a lot going on between their athletic commitments, classes, and managing their careers. They don’t want to deal with the added stress of worrying about whether their payment will arrive on time or if they filled out their W-9 correctly. They definitely don’t want to track down 1099s at the end of the year.

Student athletes stand to gain multiple benefits from using Payment Labs to manage their NIL taxes and payments:

Simple Registration: Payment Labs has created a simple, three-step process (takes less than 5 minutes) that allows student athletes to provide only the necessary information required to compliantly and securely get paid fast.

Peace of Mind: Payment Labs ensures student athletes are in compliance with tax regulations when they register to receive their NIL payments, eliminating the stress and uncertainty of handling taxes independently.

Timely Payments: Student athletes receive their earnings promptly and accurately in the method that is the most convenient for them, enhancing their financial stability and allowing them to focus on their athletics and academics.

Online Tax Forms: Year-end tax reporting becomes hassle-free as Payment Labs generates online tax forms, making it easy for student athletes to file their taxes accurately for the NIL payments they received.

Protection of Eligibility: By complying with tax laws, student athletes safeguard their eligibility to participate in college sports and protect their athletic careers.

The Benefits of Payment Labs for Businesses

Businesses want to reap the benefits of using student athletes to promote their products and help drive sales rather than focus on collecting tax forms and payment information, along with providing payment support for tracking, questions, and onboarding.. Using Payment Labs allows them to focus on their core business and scale their growth rather than being bogged down by outdated manual processes using legacy payment methods.

Businesses that engage with student athletes for NIL deals also benefit from Payment Labs:

Simplified Onboarding: Businesses only need a verified email of the student athlete they are paying. The Payment Labs platform does the hard work of collecting and verifying all the tax and payment information.

Enhanced Reputation: Partnering with Payment Labs demonstrates a commitment to compliance and ethical business practices, enhancing a business’s reputation.

Risk Mitigation: Payment Labs reduce the risk and exposure for businesses in data security, data privacy, financial risks, and tax compliance. Payment Labs takes the highest measures to protect the business from legal and financial issues related to NIL payments.  

Efficiency: Streamlined and automated payment processing and tax reporting/filing improve operational efficiency for businesses, reducing administrative costs and resources.

Compliance Confidence: Businesses can confidently collaborate with student athletes, knowing that Payment Labs ensures tax compliance throughout the payment process.

The introduction of NIL rights for student athletes has opened up exciting opportunities but has also brought about complex tax considerations. Ignoring NIL taxes can lead to significant financial and legal consequences for student athletes and businesses. Payment Labs offers a comprehensive solution that streamlines and automates NIL taxes, payments, and compliance, ensuring that all stakeholders can confidently navigate this new landscape.

By leveraging Payment Labs, student athletes can enjoy peace of mind, timely payments, and simplified tax reporting, while businesses can enhance their reputation, mitigate risks, and improve operational efficiency. There are hidden costs and risks to ignoring NIL tax implications, but with Payment Labs, student athletes and businesses can thrive in the world of college sports while staying fully compliant with tax regulations.

If you’re interested in learning more, reach out to our team today!